Moody's cuts Sony's credit rating to junk

Posted at 01/27/2014 5:34 PM | Updated as of 01/28/2014 10:08 AM

TOKYO (UPDATE) - Moody's cut its credit rating on Sony to junk on Monday, saying the Japanese electronics giant had more work to do in repairing its battered balance sheet.

The international ratings agency lowered its view of the company to Ba1 from Baa3, meaning its debt is now seen as below investment grade, a move that threatens to push up Sony's borrowing costs.

"While Sony has made progress in its restructuring and benefits from continued profitability in several of its business segments, it still faces challenges to improve and stabilise its overall profitability," Moody's said in a statement.

"Of primary concern are the challenges facing the company's TV and PC businesses, both of which face intense global competition, rapid changes in technology, and product obsolescence."

The move comes less than three months after Sony slashed its full-year profit outlook by 40 percent, dealing a blow to a much-vaunted turnaround plan, as it pointed to tepid demand for its digital cameras, personal computers and televisions.

It also pointed to a weaker-than-expected performance in its film business because of box office flops such as "White House Down" and "After Earth".

The maker of Bravia televisions and PlayStation games consoles cut its full-year profit outlook to 30 billion yen from 50 billion yen.

Monday's downgrade was the latest to hit Japan's embattled electronics industry which has continued to lose ground to overseas rivals even as a weak yen helped boost profitability.

The sector, including Sony rivals Panasonic and Sharp, has been undergoing painful restructuring to stem years of huge losses as it struggles to keep up in the low-margin television business.

Apple and South Korea's Samsung surged ahead of their Japanese rivals in the lucrative smartphone sector, although Sony has done better than its domestic rivals with its Xperia offering.

"Sony's profitability is likely to remain weak and volatile, as we expect the majority of its core consumer electronics businesses -- such as TVs, mobile, digital cameras and personal computers -- to continue to face significant downward earnings pressure," Moody's said.

It added that Sony's hot-selling new PlayStation 4 console would help earnings at its videogames unit, but warned that profitability would likely not top levels seen in previous years.

Sony chief Kazuo Hirai has shrugged off pleas to abandon the television unit, while the firm has also turned down a call from US hedge fund boss Daniel Loeb to spin off 20 percent of its entertainment arm, which includes the Hollywood film studio, to boost profits.

The Moody's downgrade marks the latest challenge for Hirai who has vowed to drag the once world-beating firm back to its former glory, and make the television and electronics business profitable.

His efforts got a boost after the firm posted a small net profit in its latest fiscal year, after four years in the red. But it was largely due to a weak yen and selling off assets, including its Manhattan office building for over $1.0 billion, as part of a wider restructuring.

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